Apple is beefing up its fintech strategy in 2022. Will more startup acquisitions be part of its plans? If you’re reading this Tim Cook, here are my recommendations.
Credit Kudos at the time of the acquisition was squarely focused on applying open banking to lending and the deal raised eyebrows in what it suggested for Apple’s future strategy.
The acquisition, alongside a number of other moves such as the launch of its own BNPL service in the US more recently, has solidified a prophecy long preached in fintech circles of an imminent major play by tech giants into banking and other financial services.
In short, Apple may be becoming a fintech company.
Credit Kudos’ founders Matt Schofield & Freddy Kelly.
Founded 46 years ago by Steve Jobs, Steve Wozniak and Ronald Wayne, Apple certainly has the firepower to acquire to its heart’s content.
According to its latest numbers, reported last week in which it saw a record revenue of $83bn for the previous quarter, the company has cash or equivalent securities worth about $179bn. That’s 50 per cent more than the entire global investment from venture capital into fintech companies in 2021’s record year for funding.
Of course, Apple is already deeply involved in financial services. A quick tally of its financial products includes Apple Pay, Apple Wallet as well as its credit card, which is only available in the US at present.
Its latest offensive into digital money includes its new BNPL product as well as an interest-bearing installment loan for purchases and its near-field communication payment system that will work directly with iPhones and allow peer-to-peer payments.
Whether the regulator, in the UK or elsewhere would give the go-ahead for Apple - which is the world’s largest company by market capitalisation - to hoover up a number of high-growth fintech startups remains to be seen but for the avoidance of doubt let’s put that to one side.
In this article, I take a look at - with many caveats aside - the fintech startups Apple might want to buy next if it’s feeling like splashing the cash.
Apple should buy…a neobank
Does Apple want to be a bank? Probably not but owning one could be very powerful.
Banks still confer trust in consumers, the essential ingredient for success in financial services.
It would also immediately help by providing it with a banking license and opening the door to ingratiating itself with financial regulators more quickly.
In addition, it would allow the company to offer a range of financial services including, of course, current accounts and utilise a bank's balance sheet to grow its lending.
The names that instantly spring to mind are Monzo and Starling in the UK. Both firms have a user experience of very high quality that would chime with Apple's own values rooted in consumer-friendly design.
It is hard to say which would offer a better deal, given each has differing levels of deposits, loans in their respective books, customer numbers and of course valuations.
Both, of course, are only mainly operating in the UK which for a superlative global brand such as Apple may prove less appealing. That being said Apple does seem to be making a UK base for its fintech foray, not least with its acquisition of a UK company but also buying up office space in the City of London, the UK’s main financial district.
Starling Bank’s founder Anne Boden.
The company, which says it has more than 20 million retail customers is active in dozens of countries but the UK remains Revolut’s largest market, with 4.8m customers at an average age of 39 years old, but Romania (2m customers), Ireland (1.9m), Poland (1.7m) and France (1.5m) are all following closely behind.
While Starling has a valuation of £2.5bn at its last funding round, Monzo at £3.7bn, Revolut is substantially more expensive at £27bn as per its last funding round twelve months ago. From purely a customer acquisition cost it is more expensive but its global growth rates may prove tantalising.
Of course, none of these prices are directly comparable and I will leave aside what price each bank's founders would sell at this stage in each companies' funding cycle and life stage.
Apple should buy Klarna
As one of the most complex areas of finance to get right, but also the most profitable, lending is clearly on Apple’s agenda.
Apple has already utilised lending to help consumers purchase its products at a 0 per cent interest rate for years. In the UK this has been powered through a deal with Barclays Bank.
Its foray into lending this year sofar includes offering instalment loans that bear interest alongside a BNPL product that is 'store-agnostic' and allows users to pay for purchases over six weeks without paying interest.
While the purchase of a rival BNPL provider might seem an odd choice there is more than one good reason.
Klarna has well over 150 million customers meaning Apple could jump straight in at the deep end with a large pool of engaged BNPL users.
This would give it immediate traction in its fintech offensive but also crucially help it establish itself against a rival who has spent more than a decade prioritising building merchant relationships.
Klarna’s founder Sebastian Siemiatkowski.
While this is arguably at odds with its approach, it provides a perfect hedge. Throwing in a strong brand and tech team and purchasing Klarna would make Apple’s consumer credit offensive unstoppable.
Klarna also has a banking license and thanks to its recent funding 'down round' Klarna May well be bought on the cheap. Its latest valuation puts it at nearly a 1/10th of its price last year. The question is would they sell?
Apple should buy Grover
Grover is a tech rental platform based in Berlin changing the nature of ownership by allowing users to rent items such as laptops, phones and even headphones. It also refurbishes these which it then sells on or rents out once more.
This taps into a potentially huge global trend of people favouring renting over outright ownership. Sometimes this is environmentally motivated as it cuts down on waste but may also go deeper than that.
Grover’s founders Michael Cassau & Thomas Antonioli.
Changing consumer habits of Millennials and Gen Z will set the tone for a huge change in how we shop. At present Apple’s fortune is axiomatically tied to annual sales of its hardware.
Services are becoming more important to Apple, but how many iPhones and iPads is still its core business. This will change. Apple’s recent success in its results was driven by selling physical goods but one of its highest growth areas was services.
The pandemic has prompted a huge shift in consumer spending from physical things to services and experiences while subscriptions have become a huge part of how people access goods and services.
While Apple already does have an iPhone subscription option, by purchasing Grover it would garner a similar level of tech expertise and growth into this long-term trend as with Klarna from a nimble and forward thinking startup.
Whether Apple is successful in its financial services offensive, particularly during a period of severe economic stress remains to be seen, but if you’re reading this Tim Cook, it makes send to take a look at more fintech startups.